What is Input Tax Credit (ITC) under GST?
Input Tax Credit under GST means the credit of input tax paid on purchases. The taxpayer can use it towards payment of output tax charged on sales. Input Tax Credit comprises of credit in form of IGST, CGST, SGST / UTGST or Cess paid on the purchase of input goods, capital goods and input services that are used for business purpose.
If the tax paid on purchases is more than the tax paid on sales, the taxpayer can carry forward the ITC. He can use it for payment of tax in future or claim the refund.
Mr.X is a manufacturer of garments. He buys cloth as input and pays GST of Rs.400. GST payable on sale of garments is Rs.1000. When he files his GST Return, he can utilise the input tax credit of Rs.400 and needs to pay a tax of Rs.600 only.
Under GST, the taxpayer can claim ITC of goods to pay GST on services and vice-versa. This was not possible under VAT or Service Tax. Further, the ITC mechanism removes the cascading effect i.e. tax on tax. The taxpayer can use the credit of tax paid at one stage of a supply chain to pay tax at a subsequent stage. Eg: IGST paid during manufacture of a product can be used for paying IGST or CGST and SGST on the sale of the same or any other product also.
View Input Tax Credit balance
The taxpayer can view the balance of accumulated input tax credit in his account on the GST Portal. The E-Credit Ledger or Input Tax Credit Ledger reflects the self-assessed Input Tax Credit from the monthly returns. It is shown under four categories i.e. IGST, CGST, SGST/UTGST and Cess. The taxpayer can use this balance for paying tax dues only. They cannot use it for paying dues of interest, tax, fee or penalty.